United States

US considers official probe of illegal Chinese wind subsidy

UNITED STATES: A new cold war - and a war of rhetoric - is erupting, with China and the US as the main protagonists, and the battle is likely to rage to mid-January and beyond.

This is when a decision is due on whether the US will complain to the World Trade Organisation (WTO) that China is allegedly violating global trade rules by illegally subsidising its clean-technology sector - especially the wind industry.

In November, US President Barack Obama chided China, saying it should stick to global rules - a reference to allegations that China is manipulating its currency, which affects China's exports and imports including wind components. "We do want to make sure that everybody is operating with an international framework and sets of rules in which countries recognise their responsibilities to each other," Obama said.

Responding to the probe by the US Trade Representative (USTR), China said there could be repercussions if the case was taken to the WTO. China's top energy official, Zhang Guobao, warned harshly that Washington cannot win this trade fight. Zhang also said the US was playing election-season politics, that it subsidises its own clean-technology industries more than China does and that its real problem is its own flagging economy.

Post election, US energy minister Steven Chu pointed out that US subsidies are open to all industries, adding that China should reciprocate and help foreign manufacturers who want to set up in its country.

Chinese officials told the official press agency Xinhua they will slightly reduce quotas for rare-earth metals in 2011. This is in addition to having already slashed quotas this year by around 40% from 2009 levels.

China controls 97% of the world supply of rare-earth metals, which are used in permanent-magnet generators (PMGs), to make next-generation wind turbines more reliable. PMGs are likely to be installed in 15% to 25% of turbines by 2013-14.

Energy independence

The US political scene changed dramatically following the November midterm elections, with Republicans controlling the House of Representatives and Democrats holding the upper house, the Senate, by a whisker. While trade issues cross party lines, US energy independence and green jobs will supersede climate change and emissions trading as the green issues of the day. This will only add to the chill of the cold war.

A sense of the US's anti-China tone was evident in recent political advertisements by the National Republican Congressional Committee aired on TV and YouTube. In one example, Democratic incumbent Baron Hill of Indiana - who was later defeated - is accused of supporting President Obama's "failed $800 billion stimulus package that created renewable energy jobs in China". The slick cartoon ad closes with upraised fists in the style of Red China political adverts. This was more vehement than the usual rhetoric against China that escalates pre-election.

Even the Nobel laureate and economist Paul Krugman, in the staid New York Times, recently slammed China over rare-earth metals, trade and Chinese "state subsidies that help firms gain key contracts, (and) the pressure on foreign companies to move production to China". He accused China of waging economic warfare on the slightest provocation and being "a rogue economic superpower, unwilling to play by the rules".

Chinese rhetoric has been equally dramatic, in part for domestic political consumption. A senior Chinese official accused the US United Steelworkers, which prompted the USTR probe, of fabricating some of the information in its 5,800-page petition. And at the global climate meet in Tianjing in October, China's lead negotiator, Su Wei, called the US a hypocritical "pig preening itself in a mirror". China is now accusing the US of manipulating its currency through the US Federal Reserve's recent plan to buy $600 billion in Treasury bonds to stimulate the US economy.

Yet underlying the war of rhetoric is a real change in US-Sino trade relations. About five years ago, Chinese leaders started focusing more on state intervention and short-term economic growth rather than on opening up the economy globally, according to Bill Reinsch, president of the Washington-based National Foreign Trade Council (NFTC), which promotes US trade. China's political shift means there is a greater focus on subsidising domestic industries and - especially in clean technology - on extracting technology from foreign companies than casting them aside, he says. NFTC members include wind giants such as GE, Siemens and UTC.

Hysteria

Even so, much of the cold war over rare-earth metals is "hysteria", says Gareth Hatch of Technology Metals Research. "The words that come out of the mouths of politicians bear little relation to the facts on the ground," he says. "There is much wailing and gnashing of teeth." For example, China is indeed reducing export quotas, he notes, but politicians and much of the media are ignoring that there are 251 companies outside China involved in mining and exploring rare-earth metals.

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